Tuesday, September 22, 2009
Hedging with futures
Just wanted to pass on some information. It doesn't apply to what you're both doing now day-trading equities, but undoubtedly at some point in your careers this will apply to you directly or somebody you know. Remember a few months ago I bought some $10 in-the-money puts on the SPY looking to hedge with leverage if the S&P went under 850. Now that I understand futures and options on futures, it's clear that my ignorance of this cost me money. Instead of buying in-the-money puts I could have bought and option to enter in to a short position of a futures contract on the S&P at 850, or any other increment I chose. With the ITM puts I bought, I stood to lose 100% of that as the SPY rallied 100 points against me, with an option on the futures I could have received the same leverage for about $1500. Again I stand to lose 100% of that, but why would you risk $5500 like I did when you can only risk $1500 and get the same protection I was seeking. So live and learn, just thought I would pass it along.
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Well yesterday I accidentally hit "Close All My Positions" and just kept hitting "Enter" and guess what I sold out of all my positions... WFC, FNM, FLEX, AIG, etc... that popped today. Also I have covered calls on WFC that I'm going to have to buy but luckily I'm up to flat so oh well live and learn... it's part of the process.
ReplyDeleteIs the "Close all positions" button something on IB? You would think something like that has a double entry button so you can't accidentally do that. Like asking you "are you sure" once you hit that button.
ReplyDeleteI accidentally dragged an Excel file to my waste basket on the desktop after I click yes to delete I start seeing the file names flash in front of my eyes. That Excel file contained 5 years worth of calculations on my options trading history starting with the first one. I spent hours on that file. It would take too many weeks to recreate it so I just started over. It felt like losing a child, or how I think that would feel. I now have an external hard drive and back my stuff up every now and then. I guess something like the drop box is what I should use, just drag that file there once a week or something.